Money Rehab with Nicole Lapin - How to Pay Off Your Student Loans

Episode Date: September 12, 2022

Maybe you're eligible for some student loan forgiveness (yay!), but didn't get all your debt covered (boo!), or maybe you weren't eligible for forgiveness at all (double boo); whatever your situation, if you have outstanding student loan debt, Nicole has some tips for you!

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Many folks, regardless of the latest student loan forgiveness plan,

are still going to need to pay off student loans. Maybe you have private loans that aren't eligible for forgiveness. Maybe you're eligible for forgiveness, but you'll still have outstanding debt even after the debt cancellation. No matter what your situation, we need to talk about what to do with that remaining debt. Before I dive in, I mentioned last week that you'd get to hear from a very special guest on how student loan cancellation will affect your credit score. Well, I spoke to Will Lansing, CEO of FICO. Yes, FICO.

That's the company used by 90% of the top U.S. lending institutions for their risk assessment and credit reporting needs about what to expect post debt forgiveness. Here's what he had to say. One thing that our listeners are really curious about these days is how the student loan cancellation will affect their credit scores. What would you say? Well, a majority of people will be affected positively from the debt cancellation. It does go in both directions. I mean, it depends. If you pay them on time, they can contribute to an improvement in your credit score. If you haven't been paying them on time, they're hurting you. When they go away, you don't get the benefit of paying them on time, but you don't have that debt outstanding either.

If you've been remiss in your payments, then the fact that it goes away actually can help you in a kind of a perverse way. But yes, it can help you. But the majority of consumers are going to find themselves the same or better with the loans being canceled, forgiven, reduced. We're actually going to hear more from Will later this week on a very juicy topic, credit scores on dating apps. But that's a topic for another day. Let's get back to the now, paying off your student loans. Oh, how I wish I had one easy trick to offer you. But alas, I don't. What I can say is that if you're starting at a mountain of debt wondering if 10K would even cover the interest on one of your loans, it's okay. I'm here to face your debt monkey head on. Let's start off

with something easy, a little baby step into kicking those loans asses. Reach out to your HR department and see if your company offers full or partial student loan repayment. And if not, in your next performance evaluation, plan on factoring student debt loan repayment into your salary negotiation. If you're still in school or if you rode the great resignation wave and are in the market for a new gig, look for jobs that do offer student loan repayment. A number of large companies do this, from Google to Hulu. The federal government also offers loan repayment to employees, including to parents who took out certain types of loans on behalf of their children.

There is also a public service loan forgiveness program, which helps to alleviate the loans belonging to the people we rely on the most, but then radically underpay, like teachers, social workers, and firefighters. Basically, if a politician has ever called you a hero one day and then voted against your dental plan the next, you're probably eligible. You may think this doesn't apply to you. Maybe you applied for the public service student loan forgiveness program before and you were told your loans didn't qualify. Or even worse, you were making payments thinking you were eligible and then you were told that they didn't count. Historically, this program has been a real fucking mess with that they didn't count. Historically, this program has been a real fucking mess with disorganization, changes and restructuring galore. So you should revisit the public service loan

forgiveness program to see if your qualification status has changed. You have a brief window to apply for the chance to have a massive amount of your federal loans forgiven, maybe even all of them, even if you refinance them. But you have to apply by October 31st. So don't sleep on this. Check out the link for this program in the show notes. Student loan repayment and student loan forgiveness only deal with loans from the federal government. But there is another type of student loans, of course, private loans. These bad boys generally have much higher interest rates or even variable interest rates. And as you might remember from our episode on mortgages, variable interest rates change when the prime interest rate changes.

Nictionary note here, the prime interest rate is the rate banks use to lend money to their best customers. And if you've been listening to your money rehab, you know that this prime interest rate is going up. So if you have a private loan, it may be worth getting it refinanced, especially if you have a decent paying job and a high credit score. Several big financial institutions offer student loan financing like Discovery and PNC. So it's worth checking to see if you can get a lower rate from one of their competitors. There are people on Reddit who have negotiated a better rate on their existing loans by doing their research and asking their lender to match a competitor's rate. And if some internet rando can do it, so can you. But don't limit yourself just to the big name student loan lenders. If you bank with a credit union or

if you have access to one, it may be worth looking into their interest rates as well. You can usually find out what your rate would be without consenting to a hard credit check, so there's really no downside to checking it out. If you have more than one loan, you need to sit down and review each loan individually and collectively. So write down the balance you owe for each loan and then the corresponding interest rates. This isn't your dream afternoon. I get it. But you owe it to yourself to set yourself up for success.

Once you have your handy dandy loan cheat sheet, you have two paths forward. If the interest rates are all about the same, you can focus on the balances of your loans. Some people like to try to pay off the small balance first. Others find it much more satisfying to start with the big kahuna. You do you. But again, chances are you probably have at least one private loan and they tend to have much higher interest rates. So those need to be paid off first. I will beat this drum until the end of my days. Pay off the largest interest rate first. The rationale is simple here. You want to shrink the snowball that is rolling down the hill the fastest. But whatever method you pick, the most important thing is to have a plan. Study after study has

shown that if you think you can't solve a problem, you're probably right. Hey, I'm not preaching toxic positivity here. It's not enough to just think you can solve a problem. You need to confront the problem with financial knowledge. But if you're out there putting in the work and believing in yourself, scientists say you have the best shot at achieving your goals and freeing yourself from student loan debt. Here's a tip you can take straight to the bank. Do you want to help your kids avoid student loans in the future?

Think about opening a 529 savings plan. These are investment accounts dedicated to paying for your kid's college. As long as you use these accounts for college, they're tax-free and have only a minimal impact on their financial aid eligibility. Paying for college is hard. I know this firsthand. So I recommend taking every helping hand you can get. Money Rehab is a production of iHeartRadio.

I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing,

engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.